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Berlin Prepares for Russia Sanctions

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July 28, 2014

BERLIN--German leaders sought to prepare the public for the consequences of sanctions against Russia ahead of a week in which the European Union is expected to escalate its economic response to the crisis in Ukraine.

Ministers in Chancellor Angela Merkel's government argued over the weekend that sanctions against sectors of the Russian economy were necessary for peace in Ukraine, even if they cost jobs at home.

"Economic interests can't be the top priority for a country. Maintaining stability and peace has top priority," Finance Minister Wolfgang Schäuble told Sunday's Bild am Sonntag newspaper. "Damaging peace and stability would be the biggest risk for the economy."

Leaders in Berlin sought to lay the groundwork for stiffer sanctions as the Obama administration released photographic evidence Sunday that it says shows that Russian forces fired rockets across the border into eastern Ukraine. The photos, it said, also offered evidence that Moscow-backed separatists used heavy weaponry sourced from Russia inside Ukraine. The images bolster the administration's assertions Thursday that the conflict has taken an ominous turn with direct Russian military involvement.

Release of the evidence comes as administration officials expect European leaders to adopt stringent new economic sanctions against Moscow, based in part on evidence showing that Russian support for separatists has only increased since Malaysia Flight 17 was shot down earlier this month.

Sanctions have been a sensitive subject in Germany because Russia is a large market for the country's export-driven economy. But the crash of Malaysia Airlines Flight 17 appears to havehelped to tip the balance in Berlin and across the country. Some prominent industry lobbyists in recent days said they supported tougher measures, and leading media outlets have criticized European politicians for moving too slowly to pull the trigger on further sanctions.

German Economics Minister Sigmar Gabriel, who is also vice chancellor, told Der Spiegel magazine that the German and European economies would feel the impact of sanctions but that the alternative would be worse.

"Which consequences would it have if Europe were to stand and watch a civil war and the death of innocent people out of fear of economic consequences," Mr. Gabriel said, defending the planned measures.

In a televised interview Sunday evening, Mr. Gabriel called for Russian oligarchs' bank accounts to be frozen across the EU. "We must show these billionaires that there is no room for them in Europe if they back a government that allows violence to continue in such a merciless way with these crazy separatists obviously willing to down a passenger flight," Mr. Gabriel said.

Trade between Russia and Germany reached $100 billion last year and represented 3.3% of German exports. Around 300,000 jobs depend directly on exports to Russia, according to Germany's DIHK Chambers of Commerce.That economic interdependence, along with widespread wariness of confronting Russia, has contributed to skepticism regarding sanctions within the German public. But the downing of the Boeing 777 earlier this month, which killed all 298 people on board, appears to have changed the mood.

Poll results published by Der Spiegel on Sunday said 52% of Germans backed tough sanctions against Russia even if they would cost "many jobs' in Germany. The magazine didn't describe the methodology of its survey. Previous surveys have shown a minority of Germans believed economic sanctions could help resolve Ukraine crisis.

Given Germany's other big trading partners, such as the euro zone and the U.S., economists and government officials have said the impact of sanctions against Russiawould be limited as long as Moscow didn't cut off gas supplies to Germany, which imports more than a third of its gas from Russia.

Over the past days, German businesses appear to have accepted that Berlin backs a tougher course against Moscow following the downing of the passenger flight. But they also warned that economic sanctions would come at a price.

"Of all EU countries, Germany has the biggest trade with Russia and would be affected most by the sanctions," said Eckhard Cordes, who heads Ostauschuss, German industry's lobbying arm for Eastern Europe, in an interview with Focus weekly magazine published Saturday.

The head of the VDMA German Engineering Association, Reinhold Festge, told the same magazine that governments should ask themselves when imposing sanctions "what damage they will cause and whether they will lead to the desired result."

Foreign Minister Frank-Walter Steinmeiertried to reassure companies that the government takes companies' concerns seriously. Mr. Steinmeiersaid he backed tougher sanctions in an interview with Der Spiegel. But he added the EU was aiming for sanctions that could "quickly be tightened but also quickly be eased if Russia is moving."